UBS Says Investors Favor Hedge Funds as Bond Returns Lacklustre

  • Hedge-fund allocations are now in the high single digits: UBS
  • Returns for hedge funds have trumped treasuries over 3 years

Institutional investors seeking higher returns and portfolio diversification are allocating more to hedge funds as interest rates remain low, according to the chief investment officer of the hedge-fund platform at UBS Group AG.

Those allocations are generally in the high single digits and can be as much as 20 percent, Bruce Amlicke, CIO at UBS Hedge Fund Solutions, said in an interview in Singapore. Five years ago, that share was “a couple of percent less,” he said without elaborating.

“Monetary policy responses to drive interest rates lower pushed fixed-income markets and yields to a level where you can look at hedge funds as an alternative to fixed income,” Amlicke said. “It’s a global phenomenon.”

U.S. treasuries returned 4.7 percent in the three years through the end of 2014, according to the U.S. Treasury Master Index compiled by Bank of America Corp. That compares with a three-year return of 22.2 percent for the Eurekahedge Hedge Fund Index. This year, treasuries have returned 1 percent, less than half of the gains in the Eurekahedge index.

“The expected returns of investing in hedge funds are not the 10-plus returns of yesteryear,” said Amlicke, who heads the $34.4 billion UBS hedge-fund platform that invests in 230 funds globally. “What people are hoping to capture in the zero-interest rate world, is Libor plus 400 basis points and then mitigating some of the risk of fixed-income and equity markets.”

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